Citi Innovates with Avalanche Blockchain to Tokenize Private Equity Funds

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Tim Hakki

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Tim Hakki

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February 15, 2024 09:33 EST

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Big four American banking giant Citi has just completed a proof-of-concept (PoC) to tokenize traditional finance (TradFi) assets and distribute them on blockchain.

The multinational investment bank and financial services corporation used Avalanche’s Evergreen subnet Spruce “for its multi-level permissioning, EVM compatibility, institutional focus, and customizability” according to a report on the project. 

In the simulation, Citi used a Wellington Management private equity fund as the underlying asset’s issuer. Dutch bank ABN AMRO role-played investor and asset manager Wisdom Tree simulated the wealth management platform.

Citi reported that the tokenized fund could be programmed using smart contracts to “automate operations, settle faster, and enable new and composable use cases.” The bank also found it always had control over the tokens and could utilize smart contracts to enforce “compliance-by-design.” 

The report highlights that blockchain technology enables use cases “that were previously unfeasible.” One example given is “using a private asset fund token as collateral to borrow more liquid asset tokens.”

Altogether, Citi found that tokenization offered “meaningful improvement” to existing financial services “and is likely a necessary step for achieving scale.”

Its PoC concludes that blockchain offers new use cases and distribution channels while facilitating “always-on compliance, including through a fully traceable audit trail.”

Interest in Tokenized Assets Beyond Citi

Citi isn’t the only big bank looking to bring TradFi assets on-chain.

As the TradFi world adopts and assimilates blockchain tech, several giant institutions have already begun exploring tokenization.

In November 2023, JP Morgan and Apollo completed their own PoC showing demonstrating tokenizing funds on any major blockchain. The PoC was executed by JP Morgan’s crypto division Onyx.

Since 2019, the bank has been using a private in-house Ethereum-based USD stablecoin called JPM Coin to move customer dollars.

In December 2023, France’s third largest bank Société Générale completed a €10 million issuance of green bonds on-chain.

Other big financial institutions that have started exploring tokenization include Franklin Templeton, Standard Chartered and South Korean asset manager Mirae.

According to Dune Analytics, tokenized securities currently have a market cap of over $488 million.